Andersen Talks With Justice Department Break Down

The survival of Arthur Andersen was further in doubt last night as talks aimed at settling the criminal charges against the firm relating to the Enron scandal broke down. Yet another big name client also deserted Andersen when Rupert Murdoch's News Corporation ended a 12-year relationship with the firm.

The failure of talks with the US justice department to settle the indictment for obstruc tion of justice means Andersen is now likely to face trial on May 6. If convicted, it will lose its licence to audit clients in most US states.

It is understood that lawyers for the accounting firm broke off the talks after failure to agree a series of issues including the length of a proposed probationary period and the wording of an admission of culpability.

Brian Sierra, a spokesman for the justice department said: "We are continuing to prepare for trial."

The attempt to avoid a conviction looks increasingly academic as international offices of Andersen continue to merge with rival firms and US partners and clients head for the door.

According to reports, 80% of Andersen's US partners have signed non-binding letters of intent to seek jobs elsewhere. KPMG hopes to hire a further 2,000 staff across the United States.

Three more European affiliates are also close to breaking away. The German operation is in talks with Ernst & Young and KPMG, the Belgian offices are merging with Deloitte & Touche and Austria said it too was in talks with rivals.

Andersen has been put under pressure to reach a settlement since David Duncan, a former partner, admitted to shredding Enron documents while investigations into the energy firm's bankruptcy were ongoing.

News Corp said it had appointed Andersen rival Ernst & Young to audit its 2002 accounts. Regulators were told that News Corp's decision to drop Andersen was motivated by "the increasing unlikelihood that Andersen can continue to provide effective global audit services to the group".

According to estimates, Andersen has been dropped by more than 200 major international companies since early February, including FedEx, Oracle and Ford.

News Corp, which paid Andersen $42m (£29m) for auditing and advisory services over the past five years, was at pains to stress that it had always received good service from Andersen in Australia - an office looking to merge with Ernst & Young.

Last night there was speculation that BSkyB, the satellite broadcaster 36% owned by News Corp, could also drop Andersen in the UK. The UK operation of the accounting firm is in the process of being acquired by Deloitte & Touche.